Designing stable mechanisms for economic environments

Paul J. Healy, Laurent Mathevet

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We study the design of mechanisms that implement Lindahl or Walrasian allocations and whose Nash equilibria are dynamically stable for a wide class of adaptive dynamics. We argue that supermodularity is not a desirable stability criterion in this mechanism design context, focusing instead on contractive mechanisms. We provide necessary and sufficient conditions for a mechanism to Nash-implement Lindahl or Walrasian allocations, show that these conditions are inconsistent with the contraction property when message spaces are one-dimensional, and then show how to use additional dimensions to achieve dynamic stability while gaining budget balance out of equilibrium.

    Original languageEnglish (US)
    Pages (from-to)609-661
    Number of pages53
    JournalTheoretical Economics
    Volume7
    Issue number3
    DOIs
    StatePublished - Sep 2012

    Keywords

    • Implementation
    • Learning
    • Mechanism design
    • Stability

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)

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